Policy limit
A policy limit is the maximum dollar amount an insurer will pay for a covered loss under a policy or coverage section. If a loss exceeds the limit, the policyholder bears the difference.
Types of limit
Per-occurrence
Caps the payout for a single claim event. Each new incident triggers a new limit.
Aggregate
Total maximum paid across all claims in a policy year. Common in liability and professional indemnity.
Sub-limit
A lower cap within a section — e.g. jewellery covered up to $2,000 within a $50,000 contents limit.
Per-person
Used in liability: a cap per injured person, separate from the per-accident limit. Common in motor policies.
Choosing the right limit
Setting your limit too low leaves you exposed to costs above it. Setting it higher costs more in premium but reduces your financial exposure. For property insurance, the limit should reflect the full replacement cost of what is insured, not its market value or purchase price.
The NAIC consumer guide provides guidance on setting adequate limits for home and auto insurance in the US. For health insurance, the FCA and APRA publish consumer guides for their respective markets.
Limit FAQ
Frequently asked questions
- You are responsible for any costs above your policy limit. For property insurance, this is called being under-insured. For liability insurance, your personal assets may be exposed. The Insurance Information Institute guide on liability limits explains how to choose adequate limits.
- A per-occurrence limit caps the payout for a single incident. An aggregate limit caps total payouts across all claims in a policy year. Commercial policies often have both — for example, $1 million per occurrence and $2 million aggregate. Once the aggregate is exhausted, no further claims are paid that year.
- Usually yes — you can request a limit increase at any time, subject to the insurer's approval and an additional premium. Increases may not apply retroactively to events that have already occurred. Consult your insurer or broker if you think your current limit may be inadequate.